Subject : SACCOs Licensing and Reporting Guidance …

1 Subject : SACCOs Licensing and Reporting Guidance Notes Date : October 2013 Scope : Savings and Credit Cooperative Societies ( SACCOs ) Table of Contents I. 2 II. Application .. 2 III. Licensing .. 2 IV. Governance .. 5 1. Meaning and Importance of Governance .. 5 2. Conditions Necessary for Effective Governance .. 6 3. Governance Structure of SACCOs .. 7 Annual General Meeting .. 7 The Board of Directors .. 8 The Principal Officer .. 9 4. Importance of Separation of Roles and Responsibilities .. 9 V. Prudential Reporting .. 10 1. Statement of Financial Position .. 10 2. Statement of Comprehensive Income .. 11 3. Capital Adequacy .. 12 4. Liquidity management .. 12 5. Risk Classification of Assets and Provisioning .. 13 6. Investments .. 15 VI.

2 Summary of Reports Required .. 17 Appendix 1 .. 18 Form A: Application Form for a Licence .. 18 Form B: Board and Senior management Information Declaration .. 25 Appendix 2 .. 32 Form1A: Statement of Financial Position .. 32 Form 1B: Statement of Comprehensive Income .. 35 Form 2A: Capital Adequacy .. 37 Form 2B: Liquidity Statement .. 40 Form 3A: Risk Classification of Assets and 42 Form 3C: Investments .. 43 Financial Year End Reports .. 44 Appendix 3 .. 45 Glossary of Terms .. 45 2 I. Introduction The SACCOs Guidance Notes are a set of critical and minimum operating requirements for SACCOs . The Guidance Notes derive legal force and validity from sections 5, 21, 36 and 91 of the Financial Services Regulatory Authority Act, 2010 (the Act) which empowers the Authority to provide supervisory and regulatory oversight on all financial services providers as listed in the Second Schedule.

3 The guideline will make possible the Licensing and effective supervision of SACCOs until such time that the SACCOs Bill and Regulations come into force. It further seeks to lay the basis for governance of SACCOs as well as on-going prudential Reporting by SACCOs , which entails the submission of various reports in the prescribed format on a monthly, quarterly, and annual basis. Of note is that many SACCO s currently lack ICT systems hence lack the capability of generating regulatory reports in the prescribed format. SACCOs may hand this document to their software vendors and ask them to make modifications that will enable their systems to generate the required reports in the required format and time frames.

4 These Guidance Notes therefore further seeks to assist SACCOs perform the following tasks: Identify the reports that are required by FSRA and their respective due dates Understand the meaning of each report listed in the Guidance Notes Obtain a template for each of the required reports Define the terms and line items in the report templates II. Application This Guidance Notes shall apply to all SACCOs applying for and subsequently granted a license to carry on business of a SACCO and may be altered or reviewed from time to time. III. Licensing 1. This Guidance Note sets out the requirements for Licensing . Its objectives are to: outline a procedure for applying for a SACCO licence. enable the FSRA to determine whether a SACCO has adequate financial strength and management with sufficient knowledge and integrity to operate the business in a sound and prudent manner sets out the necessary information to be submitted on key persons responsible for the administration and management of the SACCO.

5 This information is submitted in a form of a declaration on the history of competency, experience and good character of the Board of Directors, the Principal Officer and senior management of the SACCO. 3 2. Any person applying for a licence to operate a SACCO business shall submit the following information and/or adhere to the following procedure:- Application Form As the first step the applicant is required to obtain and complete the prescribed forms of application and submit the forms to FSRA with the payment (E the application fee and E being the licence fee). Attachments to the Applications Form A SACCO applying for a license shall be required to attach the following documents to the application form: (a) Board resolution to apply for a licence; (b) A certified copy of Registration Certificate issued under the Cooperative Societies Act, 2003; (c) Certified copy of the SACCO s By-Laws; (d) Key policy documents currently in place; (e) Board of Directors and associated committee structures; and (f) Audited Annual Financial Statements for the last three years.

6 Information on Board Members and Senior management All Board members and senior management are required to complete and submit with the application the Board and Senior management Information Declaration Form . 3. Issuance of a License FSRA shall issue a license to the applicant SACCO upon receiving all necessary documents and information together with the application and Licensing fees. 4. Other Matters All SACCOs : (a) shall be expected to be licensed from 1st April 2014. Any SACCO that will be operating without a license after 1st April 2014 shall be in contravention of the FSRA Act. (b) will be required to apply for renewal of a license at least ninety (90) days before the expiry of its operating license in respect of its head office and any other place of business.

7 The expiry date for all licenses will be 31 March of every year. 4 At the beginning of each year and not later than 30thApril, the FSRA shall publish, in at least one newspaper of national circulation, particulars of all licensed SACCOs . Submission of Applications and correspondences should be addressed to- The Registrar: Credit and Savings Institutions Division The Financial Services Regulatory Authority 2nd Floor Ingcamu Building P. O. Box 3365 Mbabane 5 IV. Governance SACCOs being financial institutions, with most of their funds coming from depositors (members) and creditors, occupy a special position of trust in the national economy therefore their corporate governance is of paramount importance.

8 Simply put, the on-going success of a SACCO starts with good governance. Checks and balances of good governance are essential to protect the interests of SACCO members. Good governance means going beyond compliance. It means taking a leadership role in instituting and maintaining practices that represent strong business ethics and ensure consistent communication. This Guidance Note seeks to ensure that Boards are committed to the constant evolution of their best practices and adopt those that enhance their board. Governance is vital to ensure that; SACCOs are managed and overseen by competent personnel, at both board and management level; that Corporate self-discipline is promoted in the governance and management of SACCOs ; and that board and management make reasonable and impartial business decisions in the best interest of the members.

9 1. Meaning and Importance of Governance Governance is the process through which an organization is directed and controlled to achieve its intended objectives. Although governance is a collective responsibility of all the organs of an organisation, the main responsibility for the good governance in the case of a SACCO falls mainly on the Board of Directors (BoD). The different organs like the supervisory and credit committees, management and the members General Meetings also take responsibility and are accountable for achievement of their respective objectives. Prudent governance should aim at: Guiding SACCOs in fulfilling their respective visions, missions and aspirations guiding management of the SACCO s strategic direction effective monitoring and oversight, by the various organs like the committees, of the implementation of the SACCO s strategy protecting SACCOs assets, reputation, values and relevance over time.

10 6 Governance is a system of checks and balances between SACCO members, the Bod and the board committees, SACCO management and other stakeholders who set the standards and objectives of achievement, and oversee their implementation. At the core of effective governance of SACCOs is the firm emphasis on and execution of responsibility and accountability, in an atmosphere of transparency. Governance is fluid: involves many players; and evolves over time according to the SACCO s legal structure and external context. Sound governance requires good leadership, competence and commitment, guided by the Bod. Although the SACCO may have many stakeholders, the governance process is under the direction of the BoD as the main organ.